New Delhi, August 14, 2017

Last Monday, Sebi had directed stock exchanges to immediately restrict trading in 331 firms

A key finance ministry official said the markets regulator acted in haste by not giving 331 companies a chance to tell their side of story before placing a trading ban on these on the grounds that these might be shell companies.

He said quite a few of these might not be entities of this type. "I think it was unfair to not give these companies a chance to explain themselves. Sebi (Securities and Exchange Board of India) acted in haste," he said. "Bankruptcy and insolvency proceedings may have been filed against them but they are not necessarily shell companies."

In a circular last Monday, Sebi had directed stock exchanges to immediately restrict trading in these 331 firms, identified as possible 'shell companies' by the ministry of corporate affairs, in consultation with the Serious Fraud Investigation Office and the income-tax department.

By definition, a shell company is without any business operations or assets. However, many with active business dealings were part of this list. At least five companies in the list have market capitalisation over Rs 500 crore each, with diverse shareholding from institutional and small investors.

These companies have been placed in the so-called Graded Surveillance Measure (GSM) Stage VI, where trading in the security is allowed only once a month, with a 'surveillance deposit' three times the trade value.

The official said shell companies have a balance sheet but no businesses to show.

The Securities Appellate Tribunal had subsequenlty stayed the trading ban on eight of these companies.

[The Business Standard]